1. How has Apple performed in the PC industry? What is your evaluation of its performance in the PC business?

Apple has performed best in the PC industry when focusing on a differentiation strategy on a core set of models produced in-house, with primary control over its distribution. When Apple tried to be a low cost seller and team up with the competition, they got trampled such as in the 90s when they dropped to 34% margin, which was 14% below a 10-year average. When Apple computers were licensed out of their hands, clones produced elsewhere stole high valued sales. The company almost went bankrupt despite attempts to cut costs. This is because they aren’t a company that at the core capability is to produce the lowest cost, lowest price, dumbed down models.

When Steve Jobs took control the second time he cancelled the licensing deals. He narrowed the product lines, and he focused on usability and capability through development and software. Steve Jobs and Tim Cook focused on differentiating their computers through ease of use, style, and simplicity. You don’t hear about cost cutting at this time. In fact, R&D was increased. This is when their sales grew the most, reversing a $1B loss just one year prior and posting a $309M profit. But the growth in the more standard PC like the first iMac was just a temporary solution to get the company back to profitability. Steve Jobs didn’t want to compete in those PCs which were saturated, and declining in price by 8-10% per year.

The standard desktop and even laptop PC has become a commodity. With companies like eMachines and Acer that were selling cheap desktop models for just a couple hundred dollars in the early 2000s, Apple rightfully realized this product was in the decline and opted to redefine what a PC is instead. You can tell by Exhibit 5 that between 2003 and 2006 Apple cut R&D in PCs by half, right around